Buying a home in 2015
Rarely in history has the real estate market seen two key low points occur at the same time like we have in the past five years – home prices were down from their peak while mortgage interest rates remain low currently hovering around 4%. Because of new economic indicators, we are at a point where these two key factors have started to reverse direction and prices have begun to increase.
For those buyers who recognize the opportunity and purchased a home in 2009-2013, these low points were a very good opportunity. For those who wait, they will most likely pay more for their new home and pay a higher interest rate as these two factors have already started to climb. The result of waiting? Thousand of more dollars out of your pocket and a decrease in home purchasing power.
Interest Rates are still low in 2015
Right now, interest rates are as low as they have been in 50 years. We are likely to never see interest rates this low again in our lifetimes. However, interest rates are predicted to climb. Fannie Mae, Freddy Mac, PMI and the National Association of Realtors were all in agreement in 2012 that mortgage interest rates will increase approximately 1% in the next twelve months. And it did. We saw 30 year fixed rates rise from an average of 3.50% to 4.50% in 2013. Some experts predict mortgage rates rise in 2015. Currently, we have seen 30 year fixed rates at 3.75%- 4%. To put this in perspective; just a 2 percent increase on a $400,000 loan from 4 percent to 6 percent, increases the monthly mortgage payment by $771. Again, mortgage rates are predicted to go further up to 5.50% by 2014 and climb further as the Federal Reserve halt their quantitave easing program. The interest rate hike alone could make the difference between you being able to fit a new home into their budget or not.
Remember that when buying a house with less interest rate, it will follow you throughout the entire length of the loan term if you get a fixed rate mortgage. So if rates increase in the next two years to 6 or 7 percent, you’ll still be enjoying your ultra low rate. If rates in 5 years climb to 10-12 percent you’re way ahead of the game and your decision to purchase when interest rates and home prices were at their lows, looks like a stroke of genius.
Home Prices are still below their peak
People often delay purchasing a home because they feel that prices may drop more. The fact is that no one can perfectly time the real estate market. Otherwise, we would not have many home buyers regretting their decision not to buy a home a year or two ago when home prices were quite depressed. This is because the bottom is always seen through the rear view mirror.
Economists universally agree that the first sign of an economic recovery is a rebound in employment. San Diego’s unemployment rate has shown signs of recovery. The area’s unemployment rate was 10.6 in 2011. These numbers improved at 9.4 in 2012 and 8.0 % as of May 2013. Economists agree that as employment and consumer confidence improve, it will begin to raise the current artificially low loan interest rates and home prices will begin to climb.
Increasing inventory means more homes to choose from
Now that more sellers are putting their homes on the market, we are seeing the beginning of an increasing inventory. This means that you now have more homes to choose from and less number of buyers going after the same house. The recent increase in home prices also means that there is now a decrease of investors on the market. Cash investors in the past were dominant in the market who routinely beat other homebuyer in multiple offer situations.
New Home Construction
As builders gain more confidence, we are also seeing a rise of new home communities. There were new home communities that stopped building during the recession and have now revived their projects by adding new phases to their existing communities. Again, this gives you more homes to choose from!
In most every case that we have personally seen, right now homeowners are in a stronger financial position selling their current home and purchasing a new larger home. This is just simple math. For the sake of argument let’s assume that they bought their current home for $400,000, and the market has declined by 20 percent – they have lost $80,000 in value. Then let’s assume that this family is moving up to a $550,000 home, with the same 20 percent decline in value, which equals $110,000. This represents a gain of $30,000! If this same family were to purchase a short sale or REO, which often times sell significantly lower than fair market price, the savings could be amazing.
The current real estate market in San Diego is like a “perfect storm” of circumstances for home buyers who can easily qualify for a mortgage or have cash. These lucky buyers will enjoy ultra low home prices and historically low mortgage rates. As with any financial decision, an individual’s circumstance can change their ideal solution. It is always best to consult with a professional to discuss the facts before deciding the best course of action.
We are experienced in this type of consultative work and available to discuss and provide guidance to anyone thinking about selling and/or buying a home in San Diego county. You can reach either of us at (760) 798-9024, email [email protected], or simply fill out the contact form below.